Investors Instruct Companies to Disclose, Manage Climate Risk

Investors Instruct Companies to Disclose, Manage Climate Risk

BOSTON, Massachusetts, June 3, 2012 (ENS) – Electric power company Constellation Energy reported reduced quarterly earnings of about $0.16 per share due to a record-setting 2011 heat wave in Texas that forced the utility to buy incremental power at peak prices.

A new report released Thursday by Calvert Investments, Ceres and Oxfam America uses the Constellation Energy situation, among others, to illustrate why investors are advising companies to manage the physical risks posed by climate change.

Technicians repair an air conditioner in the Texas heat, September 2011 (Photo by Furniture San Antonio)

The report finds that climate change already is causing a wide range of physical effects with “serious implications” for investors and businesses. These include: increases in storm intensity, sea-level rise, coastal erosion, thawing permafrost, floods, temperature extremes, wildfires, drought, water scarcity and decreased agricultural production.

Mindy Lubber, president of Ceres and director of the $10 trillion Investor Network on Climate Risk, said, “Virtually every sector faces climate risks and opportunities, and investors can’t afford for those risks to remain opaque. The guidelines in this report shed light on how businesses should analyze and quantify physical risks from climate change so that investors can make informed decisions.”

While weather variability and extremes have always existed, the science shows that extreme weather events are becoming more frequent and intense, that incremental climatic changes are already underway, and that the impacts of climate change are expected to grow more severe over the coming years and decades, the report states.

The year 2011 set records for economic losses and insured losses caused by natural catastrophes; extreme weather events accounted for 90 percent of the disasters and eight of the 10 most costly.

These extreme events resulted in overall losses of more than $148 billion and insured losses of more than $55 billion, according to data from major reinsurance companies cited in the report.

Climate change is predicted to increase these trends. The new report is expected to be useful for the public and policymakers seeking to better understand the critical issues concerning physical climate risks and strategies to adapt to, prepare for, and become more resilient to climate impacts.

Piles of debris from Hurricane Ivan and Tropical Storm Arlene line State Route 399 in Pensacola, Florida, June 2005. (Photo by Leif Skoogfors courtesy FEMA)

“Climate change is already causing costly physical impacts for communities and the companies and investors that depend on them,” said Raymond Offenheiser, president of relief and development organization Oxfam America. “As hurricane season looms, companies must begin to understand, plan for and disclose to investors the ways in which climate change is likely to affect their bottom lines.”

Written by Dave Grossman of David Gardiner & Associates, with contributors from Calvert, Ceres and Oxfam, the report examines how seven key sectors – agricultural, food and beverage; apparel; power; insurance; mining; oil and gas; and tourism – have experienced and managed losses from climate change events.

It is designed as a guide to help chart a course for disclosing and managing such risks and is intended to help companies implement a Guidance issued by the U.S. Securities and Exchange Commission in 2010 on corporate disclosure of climate change impacts on companies.

The SEC Guidance does not create new legal requirements nor modify existing ones, but rather provides guidance on applying long-standing disclosure requirements to a range of climate-related topics.

“These disclosures should also address the risks posed by climate change to the local communities in which companies operate and source, as well as the implications of the ways in which companies manage those climate impacts, including for corporate reputations and community relationships,” the Calvert-Ceres-Oxfam report advises.

An unexpected early snowstorm struck Rye, New York, October 29, 2011 (Photo by Jay Heritage Center)

“As a long-term investor, it’s important to know how companies are factoring the far-reaching impacts of climate change into their planning and risk management,” said Maryland State Treasurer Nancy Kopp, who chairs the $36 billion Maryland State Employees and Teachers Pension Fund.

Speaking Thursday at a news conference announcing the disclosure guide, Kopp said, “This report is an invaluable tool on climate risk disclosure companies should be providing, especially in regard to physical risks in operations and supply chains.”

Insurers have their own requirements for climate-related disclosure, the report states. In February 2012, insurance commissioners in California, New York, and Washington announced that they will require large insurance companies operating in their states to disclose how they intend to respond to the risks that their businesses and customers face from climate change impacts.

“This report demonstrates the tangible risks of severe climate events to companies across industries as never before,” said Bennett Freeman, senior vice president, sustainability research and policy at Calvert Investments. “Companies that do not address climate risk are sharing that risk with their investors, while investors will gain value from companies with the foresight to adapt.”

Click here to view the report, “Physical Risks from Climate Change.”

Copyright Environment News Service (ENS) 2012. All rights reserved.

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